Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit Vs ITO (ITAT Pune)
The Pune Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Year 2017-18. The assessee, a co-operative credit society engaged in providing credit facilities to its members, had filed its return declaring nil income after claiming deduction under Chapter VI-A amounting to ₹79,89,208. The original assessment under Section 143(3) accepted the returned income and allowed deduction under Section 80P. Subsequently, the Principal Commissioner of Income Tax exercised revisional jurisdiction under Section 263, holding that the Assessing Officer had failed to examine the taxability of interest income of ₹17,42,124 earned from surplus funds kept with Pune District Central Cooperative Bank, and directed a fresh assessment. In the reassessment, the Assessing Officer disallowed the exemption under Section 80P, and the CIT(A) upheld the disallowance on the ground that the interest income was not earned in the regular course of business.
Before the Tribunal, the assessee submitted that the issue stood covered by several decisions of the Pune Benches in favour of similarly placed assessees. The Tribunal observed that the assessee was admittedly a co-operative society engaged in providing credit facilities and did not possess a banking licence from the Reserve Bank of India. Referring to the Supreme Court decision in PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. and the Bombay High Court decision in PCIT v. Quepem Urban Co-operative Credit Society Ltd., the Tribunal held that the assessee was eligible for deduction under Section 80P(2)(a)(i). It also noted the divergence of judicial opinion among various High Courts regarding deduction on interest earned from deposits with banks and observed that the Pune Bench had earlier followed the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO, holding such interest income to be business income eligible for deduction under Section 80P(2)(a)(i). Following the coordinate bench decision, the Tribunal held that the interest income earned on fixed deposits with co-operative and scheduled banks retained the character of business income and qualified for deduction under Section 80P(2)(a)(i). Accordingly, it directed the Assessing Officer to allow the deduction and allowed the appeal.
